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During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows: Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $50 per share and the Pavlov Co. stock had a market value of $24 per share. Galileo Company had net income of $300,000 and paid no dividends for the year ended December 31, Year 1. All of the available-for-sale investments are classified as current assets. a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments. b. Prepare the Stockholders’ Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 15, Problem 23E
Textbook Problem
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During Year 1, its first year of operations, Galileo Company purchased two available-for-sale investments as follows:

Chapter 15, Problem 23E, During Year 1, its first year of operations, Galileo Company purchased two available-for-sale

Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $50 per share and the Pavlov Co. stock had a market value of $24 per share. Galileo Company had net income of $300,000 and paid no dividends for the year ended December 31, Year 1. All of the available-for-sale investments are classified as current assets.

  1. a. Prepare the Current Assets section of the balance sheet presentation for the available-for-sale investments.
  2. b. Prepare the Stockholders’ Equity section of the balance sheet to reflect the earnings and unrealized gain (loss) for the available-for-sale investments.

(a)

To determine

Indicate the presentation of available-for-sale investments on the current assets section of the balance sheet.

Explanation of Solution

Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

Balance sheet presentation:

Company G
Balance Sheet (Partial)
December 31, Year 1
Assets
Current assets:  
    Available-for-sale investments (at cost)$82,000 
    Add valuation allowance for available-for-sale investments5,720 
    Available-for-sale investments (at fair value) $87,720

Table (1)

Working Notes:

Compute the unrealized gain (loss) as on December 31.

Step 1: Compute the fair value of the portfolio of the available-for-sale investment...

(b)

To determine

Indicate the presentation of available-for-sale investments on the stockholders’ equity section of the balance sheet.

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Financial Accounting
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